S Baker & Co Pty Ltd Chartered Accountants

11/08/2023

11/08/2023

ANZ are cutting their cashback for refinancing from $4,000 to $2,000.

24/08/2020

Newsflash - If you are with Onepath for your TPD or Life Insurance, Onepath have announced on the 25th August, 2020 that all premiums are to rise by 25%. If you need a review of your personal insurer to an alternative insurer, contact us immediately.

10/12/2019

ATO INCREASED AUDIT ACTIVITY

In the 2019-2020 Federal Budget, the government announced that it intended to give the ATO more than $1 billion to expand the Taskforce over the next four years. In the past two weeks, the ATO announced that this work is now well underway, and that private clients should expect closer and more intense scrutiny of their tax affairs throughout 2020 and beyond.

WHO WILL THE TASKFORCE BE TARGETING?

The ATO have announced that it intends to focus on the tax affairs of the following clients over the next four years:

Top 500 groups: these groups are the largest private client groups in Australia by wealth and turnover, and include some of Australia’s most well-known and wealthiest families. Under this program, the ATO is broadening its reach beyond the top 320 groups which it targeted last year. Groups can expect the ATO to scrutinise their tax compliance and governance framework and to review the group’s significant recent transactions and tax structures, with a likely focus on any offshore investment structures, residency issues, trust arrangements, Division 7A and debt forgiveness;
High wealth individuals: these groups are controlled by Australian individuals who own, with their associates, more than $50 million in net assets. The ATO estimates that there are approximately 5,000 individuals in Australia who fit into this category. Based on our experience, international high wealth families with an Australian resident relative, assets or business interests could find themselves drawn into an ATO audit, which could include overseas arrangements also being heavily scrutinised (in co-operation with foreign revenue authorities); and

Medium business and emergent wealth: these are groups controlled by Australian individuals who own, with their associates, between $5 million and $50 million in net assets. It also includes businesses with an annual turnover above $10 million. For families in this group, a tax audit might be a new (and particularly stressful) experience. If the emergent wealth is the result of recent business transactions, the ATO will not be time barred from reviewing the underlying transactions, and taxpayers should expect very close scrutiny of these transactions.

The category which a client fits in is significant because it determines the type of response that they can expect from the ATO and its intensity. Accountants can expect to receive information about the ATO’s view of their clients who fit into these categories over the coming weeks.

WHAT WILL THE ATO TARGET WHEN IT CONTACTS CLIENTS?

The ATO operates sophisticated algorithms, data-matching and information-gathering programs to identify tax risks and non-compliance with the law. You can expect the ATO to target tax risks such as (not an exhaustive list):

- Accessing assets held in companies and trusts tax-free or without paying ‘top-up tax’;
- The transition of family wealth from one generation to another, or the transfer of control of businesses from one generation to another, including partial and complete business exits;
I- nternational movements of money and foreign assets, repatriation of assets to Australia, and tax residency. This is particularly significant given the ATO’s international reach through tax treaties and information sharing agreements;
- Generating losses, in particular given the availability of more generous tax concessions to ‘small business entities’ and ‘base rate entities’; and
- Poor tax governance and record-keeping.

IT ISN’T A MATTER OF IF, BUT WHEN

03/11/2019

ATO black economy hotline rings hot with 15,000 tip-offs
Black economy tip-off calls to the ATO have breached the 15,000 mark in the three months since it launched its new tax integrity centre, with cash payments and income declaration among the biggest gripes.

On 1 July, the ATO launched its new tax integrity centre, aimed at providing a single point of contact for reporting suspected or known illegal phoenix, tax evasion and black economy activity.

In its first quarter of operation, the tip-off centre has received 15,000 tip-offs, averaging 230 tip-offs a day.

The top categories of tip-offs include not declaring income; demanding cash from customers or paying workers cash in hand; lifestyles not matching a person’s income level; and not reporting sales.

Cafés and restaurants received the most attention, topping the list in terms of the total number of tip-offs received in the first quarter this year.

“We’re hearing loud and clear that people are sick and tired of this kind of dodgy behaviour. Running a small business can be a really tough gig, and when dishonest competitors are cheating the tax system by operating off the books, it’s really unfair and makes it even harder to succeed. It’s also effectively stealing from the community,” said ATO assistant commissioner Peter Holt.

“The proof is in the pudding. Our risk indicators tell us that there is a black economy problem in the café and restaurant industry and the fact that tip-offs about this industry top our list tells us that there is still more work to be done to protect honest café and restaurant owners and workers in this industry.

“Trading in cash and paying your workers in cash is perfectly legal but failing to report the income to the ATO and not paying your workers their entitlements like superannuation is not only illegal but also incredibly unfair,” he added.

“Regardless of what industry you’re in, if you’re cooking the books, your competitors and workers are probably aware of it. And they’re not hesitating to let us know about it.”

Apart from the hospitality industry, the ATO also received high volumes of tip-offs about black economy behaviour in the hairdressing and beauty, building and construction, and cleaning industries.

Tip-offs from New South Wales topped the ATO’s list, closely followed by Victoria and Queensland.

While tip-offs are private and can be anonymous, 53 per cent of people who provided a tip-off were happy to provide their contact details to the ATO.

“The fact that more and more people are willingly handing over their contact details when they give us a tip-off goes to show that the community has had enough of this kind of mischief. They want to help us uncover and deal with this behaviour,” Mr Holt said.

“A tip-off from the community could be the missing piece of the puzzle we need to successfully audit or prosecute someone who is illegally operating in the black economy, so we really value and rely on the community letting us know when something doesn’t add up.”

16/10/2019

Unprecedented level of visibility’: ATO announces first use of STP data

The ATO has announced its first direct use of Single Touch Payroll information, vowing to act on its “unprecedented level of visibility” of superannuation information, as it sends a warning to errant employers.

ATO deputy commissioner James O’Halloran said the agency is now “heavily focused” on SG obligations, having recently completed an examination of SG contributions for 75 million payment transactions for the first three quarters of 2018–19 for around 400,000 employers.

“From this data, we can already see that between 90 per cent and 92 per cent of contribution transactions by volume were paid on time and that between 85 per cent and 90 per cent of the transactions by dollar value were paid on time,” Mr O’Halloran said in a speech to the Australian Institute of Superannuation Trustees (AIST) 2019 Chairs Forum.

“We’re now starting to actively use the data to warn employers who appear not to be paying the required SG on time, in full or at all, that they should change their behaviour.”

The ATO has attributed the increased in data visibility to the introduction of Single Touch Payroll (STP) reporting and improvements in super funds’ reporting through the Member Account Transaction Service (MATS).

A new SG campaign is now underway, with Mr O’Halloran noting that 2,500 employers who have been identified as having paid some or all of their SG contributions late during 2018–19 set to be contacted this week.

A further 4,000 employers will begin receiving due-date reminders from the ATO.

“It should be noted this is the first direct use of the Single Touch Payroll reporting arrangements, based on what your funds report to us relating to SG payments,” Mr O’Halloran said.

“It’s a tangible action which demonstrates our increasing ability to effectively follow up in relative real time apparent late or non-payment of SG.”

SG amnesty

The ATO’s actions come as the proposed SG amnesty and its associated legislation has been reintroduced into Parliament.

The SG amnesty provides for a one-off amnesty to encourage employers to self-correct historical SG non-compliance dating from 1 July 1992 to the quarter starting on 1 January 2018.

While the ATO will continue to apply the existing law until the bill passes, employers have been warned of the short six-month amnesty time frame to rectify any past underpayments.

SG audit work

Mr O’Halloran was also keen to tout the ATO’s ongoing SG audit work, with 27,000 SG cases completed over the last financial year.

Of those, 22,000 employers were contacted and the ATO raised assessments for $805 million in outstanding SG.

The ATO also issued 5,000 individual director penalty notices (DPNs) for 3,600 companies to a combined value of $283 million.

“As importantly, as a result of our compliance activities, we collected $532 million in outstanding SG and distributed it to 471,000 individuals during 2018–19,” Mr O’Halloran said.

27/08/2019

Tax Office focus on foreign income.

The Tax Office has repeated its focus on foreign income this tax time, warning practitioners that they may be contacted if certain red flags crop up.

The ATO will be paying close attention this tax time on taxpayers correctly reporting all sources of foreign income on their tax return.

Accordingly, tax practitioners may hear from the ATO if their practice reports a large amount of foreign losses.

Practitioners and clients may also be contacted if the Tax Office receives information from a foreign revenue authority or other third parties indicating that a client may have received income from another country.

The Common Reporting Standard (CRS) gives the ATO access to financial account data from over 65 foreign jurisdictions which have committed to exchanging information with each other.

ATO Assistant Commissioner Karen Foat said that with financial account information of more than 1.6 million offshore accounts holding over $100 billion now available to the agency, hiding assets and income offshore was now “pointless”.

“If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount may be. This may include income from offshore investments, employment, pensions, business and consulting, or capital gains on overseas assets,” said Ms Foat.

“Australians that deliberately move cash overseas in an attempt to hide it should be concerned. Hiding your assets and income offshore is pointless. ‘Tax havens’ are becoming a less effective model as international agreements improve transparency. You can no longer hide money behind borders.

Foreign income includes most pensions and annuities, interest, dividends, royalties, rent, capital gains, personal services income.

15/08/2019

ATO eyes undisclosed foreign income as fresh offshore data rolls in

Financial account information of more than 1.6 million offshore accounts holding over $100 billion has now been made available to the ATO, with clients urged to come clean this tax time.

With the Common Reporting Standard (CRS) now in full swing, the Tax Office now has access to financial account data from over 65 foreign jurisdictions which have committed to exchanging information with each other.

ATO visibility over foreign financial account information will allow it to track Australian taxpayers who are not reporting foreign income.

Account information being shared will include depository accounts, custodial accounts, debt or equity accounts, and cash value insurance and annuity contract accounts.

The data will contain details about each financial account including the account balance, interest payments, dividend payments, proceeds from the sale of assets and other income.

While the CRS was legislated to come into effect on 1 July 2017, the first round of data from foreign jurisdictions was received in September 2018, with the second data exchange set to take place next month.

“If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount may be. This may include income from offshore investments, employment, pensions, business and consulting, or capital gains on overseas assets,” said ATO assistant commissioner Karen Foat.

“Australians that deliberately move cash overseas in an attempt to hide it should be concerned. Hiding your assets and income offshore is pointless. ‘Tax havens’ are becoming a less effective model as international agreements improve transparency. You can no longer hide money behind borders.

“Whether it is rental income from your old family home, an untouched bank account earning interest, or salary from working offshore, it must be reported. Even if you have paid tax on the overseas income, it must be reported to the ATO; however, you may be able to claim a foreign income tax offset to account for any foreign tax paid.”

Early data available to the ATO has revealed that many Australians have financial dealings in countries like China, the United Kingdom, Switzerland, Singapore and the United States.

Last year, 106 Australians who were suspected of utilising tax evasion schemes through holding unnamed numbered Swiss bank accounts were singled out by the Tax Office.

Accountants with clients who have not included income from assets held offshore in their tax return have been urged to make a voluntary disclosure as soon as possible.

BDO partner Mark Molesworth previously told Accountants Daily that the ATO’s focus on foreign income should spur accountants to inform their clients on their obligation to disclose.

“It will be worth for accountants to specifically ask clients whether they do have any sources of income offshore, any investments offshore,” Mr Molesworth said.

“It would be worth mentioning to clients, without indicating that they disbelieve their clients, that the CRS is now coming in and the data is going to be provided to the Tax Office, and if there is something that needs to be disclosed, then now would be the time to do it.”

30/06/2019

ATO Focus on motor vehicle deductions.

Over $7.2 billion in work-related car expenses claimed last year have placed the popular deduction firmly in the headlights of the ATO this tax time.

According to ATO assistant commissioner Karen Foat, over 3.6 million people made a work-related car expense claim in 2017–18, totalling more than $7.2 billion.

The deduction will be a key focus area for the Tax Office this year, with one in five claims exactly at the maximum 5,000km limit for the cent per kilometre method.

“While some claims of exactly 5,000km are legitimate, we’ve found many people are unable to show how they’ve arrived at this amount, and as a result, they’ve had their claim reduced or disallowed in full,” Ms Foat said.

“We are still concerned that some taxpayers aren’t getting the message that overclaiming will be detected, and if it is deliberate, penalties will apply.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make and car expenses their employer paid for or reimbursed them for.”
Ms Foat said the ATO’s sophisticated analytics will compare taxpayer claims with others earning similar amounts in similar jobs.

In one unsupported claim last year, a taxpayer claiming $4,800 using the logbook method had triggered an ATO red flag, with a request for the logbook resulting in the taxpayer presenting a car service logbook instead of a logbook kept for calculating their work-use car percentage. The taxpayer was found to have not undertaken any work-related car travel during the year.

Another claim was flagged after the ATO identified an office worker claiming $3,300 for 5,000 kilometres of work-related travel using the cents per kilometre method. The taxpayer advised that his employer did not require him to use his car for work and that his claim was based on trips he made from home to work.

According to Ms Foat, where the Tax Office identifies questionable claims, they will contact taxpayers and ask them to show how they have calculated their claim. In some cases, where further scrutiny is warranted, the ATO may even contact employers to confirm whether a taxpayer was required to use their own car for work-related travel.

“Simply driving between work and home is not enough to warrant a deduction. You must have a work-related need to travel while performing your job, like traveling from site to site or be required to transport bulky tools,” Ms Foat said.

Apart from work-related deductions, the ATO has also indicated its focus on the overclaiming of rental deductions and the non-declaration of rental income, after commissioner Chris Jordan said that a random audit sample of returns with rental deductions found that nine out of 10 contained an error

24/06/2019

No Tax Deduction for Cash in Hand Payments

The Tax Office has reminded the accounting community that cash-in-hand payments to employees and contractors will no longer be eligible for a tax deduction, as part of a crackdown on undeclared earnings.

The new rule was unveiled as part of the 2018-19 federal budget. It will take effect for all payments made from 1 July this year, for income tax returns lodged for the 2019–20 financial year and beyond.

According to the ATO, the new rule aims to level the playing field where businesses pay workers in cash to avoid PAYG withholding obligations, and where contractors do not provide an ABN or withhold any tax and cash payments they receive.

ATO assistant commissioner Peter Holt said in a statement that the removal of tax deductions for cash payments is just one way it is tackling the black economy.

“It’s fairly straight-forward: do the right thing and you can claim a deduction. Deliberately do the wrong thing and you’ll miss out on a deduction and risk being penalised,” he said.

“The Black Economy Taskforce estimates that the black economy is costing the community as much as $50 billion, which is approximately 3 per cent of gross domestic product (GDP). This is money that the community is missing out on for vital public services like schools and roads.

“Businesses that operate in the black economy are undercutting competitors and gaining a competitive advantage by not competing on an even footing.”

Mr Holt also warned that employers not complying with PAYG withholding requirements can be penalised.

He noted that cash is “a legitimate way of doing business, and we recognise that some industries do tend to take more cash than others”, but that it is often being used to avoid paying tax and superannuation.

“When cash is used to deliberately hide income to avoid paying the correct amount of tax or superannuation, it’s not only unfair, it’s illegal,” Mr Holt said.

Honest mistakes won’t be impacted

The removal of the tax deduction will not apply to innocent errors, where an employer accidentally classifies an employee as a contractor if they are provided with an ABN.

“Our objective is to support small business to help them get it right,” Mr Holt said.

“But anyone caught deliberately doing the wrong thing will lose their deduction.”

According to Mr Holt, employers that voluntarily disclose that they have not met withholding requirements before the ATO takes any form of compliance action will still be eligible for the deductions, and may also be entitled to penalty reductions.

20/06/2019

Director penalty change strengthens SG rules - directors now personally liable for unpaid super for employees

Company directors need to keep in mind that the Corporations Act holds directors personally liable for many of the legal and financial obligations expected from a company.

Since 2015, company directors have been expected to personally shoulder pay-as-you-go withholding requirements should these not be met, and superannuation guarantee payments that are not paid on time (within 28 days of the end of each quarter). The latter generally also includes a “superannuation guarantee charge” (SGC, which is the amount not paid plus interest plus an administrative penalty).

As well as directors possibly facing personal liability, the options available to the ATO under its director penalty regime includes garnishee proceedings to recover amounts owed, offsetting amounts owed against any other tax credits, and initiating legal recovery proceedings.

Before any of such actions are taken however, the ATO is obliged to issue a “director penalty notice” outlining the unpaid amounts and remission options open to the concerned directors. Until recently (more below) it was generally the case that the ATO would issue a director penalty notice three months after the due date of the relevant overdue obligation should the owed amounts either not be paid or not reported to the ATO. Directors would have 21 days from the date of the notice to act, or be held personally liable.

Should the shortfall amounts be reported to the ATO within that three months, the director penalty is deemed “non-locked-down” — that is, there are still certain options available to avoid personal liability: pay the amounts owed; appoint an administrator; or begin winding up the company.

The latest change means that there is now to be no three month period allowed after the due date (28 days after each quarter) for superannuation guarantee (SG) and SGC payments. After the due date, the amounts owed by the company are “locked-down”. In other words, directors become automatically personally liable.

Previously, placing a company into voluntary administration or insolvency within the 21 days from receiving a director penalty notice would avoid the penalty. This option, which the ATO seemed to be taking aim at, is now closed. For a recent financial year, the ATO estimated that more than $100 million of SGC debt was irrecoverable due to insolvent businesses, so the change to this part of the rules should help improve this outcome.

16/06/2019

ATO announce increased audit activity for small businesses.

Earlier this year, the government announced a fresh $1 billion funding boost to the ATO to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.

Last week, ATO deputy commissioner Deborah Jenkins announced that the Tax Office will launch a new black economy hotline on 1 July 2019, giving the public an opportunity to dob in businesses “offer[ing] discounts for cash”.

ATO commissioner Chris Jordan has also hinted towards a $10 billion tax gap in the small business sector, significantly larger than the corporate tax gap at $1.8 billion, and the individuals not in business tax gap at $8.7 billion.

On the individuals front, the Tax Office also recently applied to the Office of the Australian Information Commissioner (OAIC) to hold on to lifestyle assets data from insurers for a further two years.

“There has been a marked increase in job advertisements for various positions within the ATO, particularly within the black economy and Tax Avoidance Taskforce areas,” Ms Dunn said.

“The government committed over $1 billion of funding in the federal budget for ATO audit activity, and I fully expect we will start to see a marked increase in ‘please explain’ letters and audit activity over the coming months.”

With Single Touch Payroll data starting to flow through, Ms Dunn believes small businesses and individual taxpayers can start expecting reviews if their data falls outside benchmarks.

With this in mind, Ms Dunn believes tax practitioners should start proactively engaging with high-risk clients to manage their firm’s own risks.

“Tax agents have the opportunity to assist clients with relevant tax advice or with setting up processes to help them comply with tax obligations,” Ms Dunn said.

“Tax agents also have the opportunity to review their own risk, by ensuring adequate processes are in place to assist in identifying things such as unusual deductions, clients who disclose low taxable income but have a lavish lifestyle, client non-compliance with compulsory superannuation and withholding obligations, Division 7A and trust issues.

“If the tax agent is aware of, or identifies, areas of client non-compliance, I would strongly recommend they discuss with their clients the benefits of early engagement and voluntary disclosure with the ATO.”